New York and New Jersey Hold Fast to No “Occurrence” for Faulty Workmanship Claims

more+
less-

During the past year, five state supreme courts (Alabama, Connecticut, Georgia, North Dakota and West Virginia) have found that faulty workmanship by a construction contractor or subcontractor can be a covered “occurrence.” Ignoring precedent, the West Virginia Supreme Court overhauled state law and held that the term “occurrence” in commercial general liability policies includes claims based on defective construction. Cherrington v. Erie Insurance Property &Casualty Co., 745 S.E.2d 508 (W. Va. 2013).

The North Dakota Supreme Court in K & L Homes, Inc. v. American Family Mutual Insurance Co., 829 N.W.2d 724 (N.D. 2013) also reversed direction and found that defective construction/faulty workmanship claims may constitute an “occurrence,” provided that the insured did not expect or intend the faulty work and resulting damage. The Alabama Supreme Court, on rehearing, withdrew an earlier opinion and issued a new decision that held defective construction could constitute a covered “occurrence” under a commercial general liability policy if the damage was unintended. Owners Ins. Co. v. Jim Carr Homebuilder, LLC, No. 1120764, 2014 WL 1270629 (Ala. March 28, 2014). 

Notwithstanding the foregoing “trend,” a New York appellate court (applying New Jersey law) recently held there was no insurance coverage for deficiencies in construction and improper/faulty workmanship that results in damage to the insured’s own work. In National Union Fire Ins. Co. of Pittsburgh, PA v. Turner Construction Co., 2014 N.Y. App. Div. LEXIS 3546,2014 N.Y. Slip Op. 3607 (App. Div., 1st Dept., May 15, 2014), the appellate court affirmed the lower court’s decision that commercial liability insurance does not cover breach of contract, breach of warranty or breach of fiduciary duty claims. It also affirmed the lower court’s decision that asserted improper/faulty workmanship claims are not covered, and cited New Jersey and New York law to support its decision. 

In reaching its decision on the improper/faulty workmanship claims, the appellate court relied upon precedent and held that “[t]here is no ‘occurrence’ under a commercial general liability policy where faulty construction only damages the insured’s own work.” It also noted “that fortuity is still an essential consideration under New Jersey and New York law when determining whether there is coverage under such a policy, and a claim for faulty workmanship simply does not involve fortuity.”

On November 25, 2013, New Jersey State Assemblyman Gary Schaer introduced Bill No. A4510, which would have required liability policies issued, renewed or delivered in New Jersey to define “occurrence” to include damages resulting from faulty workmanship. The bill died in committee, but is indicative of another trend to legislate the “occurrence” issue in the context of improper/defective/faulty workmanship claims.

Given the foregoing, as always, it is important to check current law before deciding whether there is coverage for a claim for faulty workmanship. 

A copy of the New York Appellate Court’s May 15, 2014, decision can be found here.

Topics:  Commercial General Liability Policies, Construction Defects, Construction Disputes, Construction Workers, Contractors, Faulty Workmanship, Occurrence

Published In: General Business Updates, Construction Updates, Insurance Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Nelson Brown & Co. | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »